Consumers have been so far the stalwarts of the European recovery -- but how long can they continue to prop up the economy?
Helped by cheap oil, stagnant prices and even slowly-receding unemployment, families and small businesses have been spending their way out of recession. They've been the major driver for growth in the euro area, because companies have been nervous at investing in an uncertain world, and governments have had their spending power curtailed by high debt and EU budget rules.
While it's plain that consumers can't set the pace for the whole economy for ever, there's evidence that they're not ready to drop the baton just yet. The growth rate of M1, a narrow measure of the supply of money, suggests that the consumer boom can continue for some time. Growth in M1 accelerated to 11.8 percent in October from 11.7 percent in September, the fastest pace since January 2010.
"Adjusted for inflation, the liquid balances of households and companies -- real M1 -- are our favorite long-term leading indicator for domestic demand in the euro zone,'' says Holger Schmieding, chief economist at Berenberg Bank in London. "Real M1 tends to flag major changes in demand some three quarters in advance. Strong M1 points to further gains in domestic demand ahead."
Schmieding's point is that the European Central Bank's monetary easing may be reaching the pockets of consumers more directly than thought. And as ECB President Mario Draghi is expected to announce an expansion of the $1.2 trillion quantitative easing program this week, it could turn out that the consumer recovery has got some legs yet.